Practice Text Exercises
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Practice Test Exercises
Question 2-48
Compute the predicted 2007 operating income for Procter & Gamble and its percentage increase. Explain why the percentage increase in income differs from the percentage increase in sales.
Sales ($68,222 x 1.1) = $75,044
COG ($33,125 x 1.1) = $36,438
Selling/General/Admin Exp. $21,848 (no change)
Operating Income $16,758.00
Percentage Increase ($16,758-$13,249)/$13,249= 26.5%
There was not an increase in all cost which caused the operating income to change from 2006 to 2007. The COG may always increase because it is considered a variable cost. Due to the increase in sales, the percentage increase is much higher.
Question 2-61
1. Compute the budgeted profit at the expected volume of 600,000 units under both the old and the new production environments.
Old Production Operation New Production Operation
Sales (600,000 X 3.10) 1,860,000 1,860,000
Less: Variable Costs (600,000 X 2.10, 1.10) 1,260,000 660,000
Contribution Margin 600,000 1,200,000
Less: Fixed Costs 580,000 1,140,000
Net Income 20,000 60,000
2. Compute the budgeted break-even point under both the old and the new production environments.
Unit Contribution Margin $3.10-$2.10=$1.00 $3.10-$1.10=$2.00
Fixed Cost 580,000 1,140,000
Break Even Units (FC/UCM) 580,000/1=580,000 1140,000/2=570,000
Break Even Sales 580,000x3.10=$1,798,000 570,000 x 3.10= $1,767,000
Fixed Cost/Unit Contribution Margin
Old=580,000
New=570,000
3. Discuss the effect on profits if volume falls to 500,000 units under both the old and the new production environments.
Old Production Operation New Production Operation
Sales (500,000X3.10) $1,550,000 $1,550,000
Less: Variable Costs (500,000 X2.1, 1.1) $1,050,000 $550,000
Contribution Margin $500,000 $1,000,000
Less: Fixed Costs $580,000 $1,140,000
Net Income ($80,000) ($140,000)
Old Production Profit becomes smaller then New Production Profit. There is a rapid decrease under the New...
Question 2-48
Compute the predicted 2007 operating income for Procter & Gamble and its percentage increase. Explain why the percentage increase in income differs from the percentage increase in sales.
Sales ($68,222 x 1.1) = $75,044
COG ($33,125 x 1.1) = $36,438
Selling/General/Admin Exp. $21,848 (no change)
Operating Income $16,758.00
Percentage Increase ($16,758-$13,249)/$13,249= 26.5%
There was not an increase in all cost which caused the operating income to change from 2006 to 2007. The COG may always increase because it is considered a variable cost. Due to the increase in sales, the percentage increase is much higher.
Question 2-61
1. Compute the budgeted profit at the expected volume of 600,000 units under both the old and the new production environments.
Old Production Operation New Production Operation
Sales (600,000 X 3.10) 1,860,000 1,860,000
Less: Variable Costs (600,000 X 2.10, 1.10) 1,260,000 660,000
Contribution Margin 600,000 1,200,000
Less: Fixed Costs 580,000 1,140,000
Net Income 20,000 60,000
2. Compute the budgeted break-even point under both the old and the new production environments.
Unit Contribution Margin $3.10-$2.10=$1.00 $3.10-$1.10=$2.00
Fixed Cost 580,000 1,140,000
Break Even Units (FC/UCM) 580,000/1=580,000 1140,000/2=570,000
Break Even Sales 580,000x3.10=$1,798,000 570,000 x 3.10= $1,767,000
Fixed Cost/Unit Contribution Margin
Old=580,000
New=570,000
3. Discuss the effect on profits if volume falls to 500,000 units under both the old and the new production environments.
Old Production Operation New Production Operation
Sales (500,000X3.10) $1,550,000 $1,550,000
Less: Variable Costs (500,000 X2.1, 1.1) $1,050,000 $550,000
Contribution Margin $500,000 $1,000,000
Less: Fixed Costs $580,000 $1,140,000
Net Income ($80,000) ($140,000)
Old Production Profit becomes smaller then New Production Profit. There is a rapid decrease under the New...